2017 (5) TMI 1483 - HC - Income Tax

TPA - Comparable selection - grievance of the Revenue is that without a proper discussion and merely relying on past precedents, the ITAT has excluded the comparables chosen by the Transfer Pricing Officer (TPO) after rejecting the 22 comparables included by the Assessee in its Transfer Pricing study - Held that - The Court has carefully perused the impugned order of the ITAT and the discussion on this aspect. In the considered view of this Court, while it is true that previous precedents have been relied upon by the ITAT, it would be incorrect to say that ITAT did not take into account the factors that weighed with it for excluding the said comparables. The Court does not find any substantial question of law arising on this aspect and therefore, declines to frame any question. Deduction under Section 10 A - case of the Revenue is that ITAT erred in accepting the case of the Assessee that the communication charges should stand excluded both from the export turnover as well as the total turnover - Held that - It is seen that this Court in CIT v. Genpact India 2011 (11) TMI 119 - DELHI HIGH COURT has answered this very issue in favour of the Assessee and against the Revenue. No substantial question of law

Summary

Issues:
1. Exclusion of comparables for calculating arm’s length price
2. Deduction under Section 10A of the Income Tax Act

Analysis:

Issue 1: Exclusion of comparables for calculating arm’s length price
The appeal by the Revenue challenges the ITAT's order excluding certain comparables for determining the arm’s length price of an international transaction during the AY 2005-06. The Revenue contends that the ITAT failed to provide a proper discussion and solely relied on past precedents for excluding the comparables chosen by the Transfer Pricing Officer (TPO) after rejecting 22 comparables included by the Assessee in its Transfer Pricing study. Upon careful examination of the ITAT's order, the High Court observed that the ITAT did consider the factors leading to the exclusion of the comparables, even though past precedents were relied upon. The Court concluded that no substantial question of law arose on this aspect and declined to frame any question, ultimately upholding the ITAT's decision.

Issue 2: Deduction under Section 10A of the Income Tax Act
The second issue pertains to the deduction under Section 10A of the Act. The Revenue argued that the ITAT incorrectly accepted the Assessee's stance that communication charges should be excluded from both the export turnover and the total turnover. The High Court referred to a previous case, CIT v. Genpact India, where a similar issue was decided in favor of the Assessee and against the Revenue. Consequently, the Court found no substantial question of law arising on this issue. As a result, the Court dismissed the appeal filed by the Revenue.

In conclusion, the High Court dismissed the Revenue's appeal under Section 260A of the Income Tax Act, 1961, against the ITAT's order for the AY 2006-07. The judgment addressed the issues of excluding comparables for calculating the arm’s length price and the deduction under Section 10A, ultimately upholding the decisions made by the ITAT in both aspects.